Intesa seeks to boost dividend in 2021 after UBI deal

By Valentina Za

MILAN (Reuters) - Intesa Sanpaolo beat forecasts with its second quarter earnings on Tuesday and gave an upbeat dividend and profit outlook days after completing the takeover of smaller rival UBI.

Intesa has just concluded a tortuous battle for Italy's healthiest second-tier bank aiming to drive profits from the deal through cost cuts and a focus on wealth management and insurance.

CEO Carlo Messina said the transaction would strengthen Intesa's position in Europe ahead of an expected wave of consolidation in the sector, but said cross-border mergers were not a priority.

"I don't see value for shareholders in geographical diversification at present," he said.

Intesa confirmed a 2022 profit goal of at least 5 billion euros (4.5 billion dollars) for the merged group, which will be the euro zone's eighth-largest bank by assets and will command at least a fifth of all main banking products domestically.

Intesa will present a business plan for the new group by the end of 2021, waiting first for a clearer macroeconomic picture.

Even without the UBI contribution, Intesa stuck to a 2020 profit goal of at least 3 billion euros, rising to at least 3.5 billion euros in 2021.

"In terms of guidance and outlook, we believe it is very much a case of no news is good news," Santander analysts said.

"In a quarter when other banks have disappointed with weaker performance because of COVID-19, we believe Intesa's results were reassuring."

Intesa's shares extended gains after the results, rising 6% by 1503 GMT.

Following a dividend freeze demanded by the European Central Bank to help banks to cope with the virus crisis, Intesa said it would seek ECB approval to pay out as dividends in 2021 part of its net income from both 2020 and 2019 in the light of its robust capital buffers.

Core capital strengthened further to 14.9% of assets in June from 14.5% in March helped by regulatory changes.

Net profit for the three months through June came in at 1.4 billion euros ($1.7 billion), up 16% year-on-year and above an average 1.1 billion euro forecast in a Reuters analyst survey.

Earnings benefited from a 1.1 billion euro capital gain from the sale of Intesa's retailer payments business.

The bank used the money to write down loans by 1.4 billion euros in an economy reeling from the fallout of the coronavirus pandemic. It raised provisions on performing loans which may deteriorate as debt holidays and other government support measures wane.

Income from the traditional lending business held up in the quarter and Intesa guided for a positive trend going forward, partly thanks to funds borrowed at negative rates from the ECB.

A prolonged lockdown drove fees down 11% in the quarter though Intesa said June had seen a rebound which continued in July. (($1 = 0.8498 euros)

(Reporting by Valentina Za, editing by Silvia Aloisi and Jane Merriman)